The Fat Cats Protection League

After my column last week, several people wrote to point out that the neoliberal project – which demands a minimal state and maximum corporate freedom – actually relies on constant government support. They are of course quite right. The current financial crisis, caused by a failure to regulate financial services properly, is being postponed by government bail-outs. The US Federal Reserve has reduced its lending rate to the commercial banks, while the Bundesbank organised a E3.5bn rescue of the lending company IKB. This happens whenever the banks suffer the consequences of the freedom they demand. But over the past week an even starker example has emerged.

In Britain the split loyalties of the major political parties has created a hybrid system of public provision. If it left public services intact, the party in power would be roasted by the corporate media, but if it attempted full-scale privatisation, it would be booted out of office. So the last Conservative government devised a plan which would keep both sides if not exactly happy then at least totally bewildered. They called it the private finance initiative, or PFI. Corporations would build and run our schools, hospitals, roads and prisons and rent them to the state. This, the Tories maintained, would enable costs to be cut, while ensuring that public services remained free of charge.

At first Labour opposed this scheme. Alastair Darling warned in opposition that “apparent savings now could be countered by the formidable commitment on revenue expenditure in years to come”(1). But as the 1997 election approached, Labour sought to prove that it was more sympathetic to business than the Tories. Two months after the party took office, the health secretary, Alan Milburn, announced that “when there is a limited amount of public-sector capital available, as there is, it’s PFI or bust”(2). From then on, the only money the NHS could rely on for capital projects belonged to the private sector.

The problem was that much of what the NHS wanted to do was not attractive to private financiers. In Coventry, for example, it had been planning to refurbish its two hospitals at a cost of £30m(3). But its analysts realised that business would not be interested. The scheme was too small and there was no scope for the financial innovation which could produce serious profits. As a confidential report by the local health authority showed in 1998, the health service re-designed its scheme to make it more attractive to private capital(4). Instead of refurbishing the two existing hospitals, it would ask private business to knock them down and build a new one – the University Hospital. This would cost not £30m but £174m. The health experts who wrote the confidential report predicted than in order to find this money, the hospital trust would have to cut both beds and services. They have just been proved right.

Did I say £174m? I beg your pardon. By January 2002, the price had risen to £290m(5). A month later it reached £311m. By the end of that year it had grown to £330m(6). In 2003 it was estimated at £370m. In March 2007, the Birmingham Post reported that the final cost was £410m(7). This year the hospital trust must find £56m, in the form of repayments and service fees, to hand to the private consortium(8). The annual cost will rise in line with the retail price index for 30 years.

It is now pretty obvious that this fee is unpayable, if the hospital is to maintain a proper standard of care. Over the past few days the hospital trust has announced a £30m hole in its budget(9). Around £10m of the necessary cuts could be found by making staff redundant: it will lose perhaps 200 people, possibly 375. It will also rely on “revenue generating activities”. These include charging people £3 for dropping their sick relatives outside the hospital, and £10 for parking there, while cancelling the free parking scheme for disabled people. As the new hospital (against the wishes of 160,000 people who signed the Socialist Party’s petition to have it built in the city centre) is on the edge of the city, which means that it is hard to reach without a car, this is an effective way of raising money. But it casts doubt on the government’s claim that the NHS remains free at the point of use.

The trust’s press officer told me that this cost-cutting is a unique event: “we have always balanced our books up to this year”(10). But in 2005 – the year in which the PFI payments began – a leaked memo revealed that the trust was anticipating a deficit of £13m by the end of the financial year and “drastic measures” were required to plug the gap(11). These included the closure of one ward, the removal of eight beds from another, limiting the opening hours of the Surgical Assessment Unit and the “rationalisation of certain posts”: which meant, eventually, cutting 116 jobs(12).

In 2006 the local paper reported a shortfall of £29m(13). This was met partly by freezing the recruitment of district nurses. In January this year, the hospital announced that it was closing another ward, just six months after it opened(14). Yet another ward – treating people with acute conditions such as pneumonia and strokes – was closed in June(15). The impact of these cuts is already being felt: three months ago the new hospital found itself in the bottom ten in the national league table for waiting times(16). Where will the money come from over the rest of the 30-year contract?

There is one set of costs the hospital cannot cut: the money it must pay every year to the private financiers. In September 1997 the government declared that these payments would be legally guaranteed: beds, doctors, nurses and managers could be sacrificed, but not the annual donation to the Fat Cats Protection League(17). The great free market experiment looks more like a corporate welfare scheme.

The government justifies all this by claiming that privately financed schemes are cheaper than comparable public schemes. Allyson Pollock showed on these pages in April that the data required to support this claim does not exist, or if it does the government refuses to release it(18). But as the Coventry scheme shows, there’s an even bigger deception at work. The government compares the cost of building the hospital under PFI with the imagined cost of building it with public money. But it would not have been built with public money. If public funds had been available, the two existing hospitals would have been refurbished, at around one 13th of the cost.

It was Gordon Brown who insisted that PFI became the principal means of funding capital projects in the United Kingdom. By deferring costs into the future, as Darling warned, he was able to sustain his reputation as an iron chancellor, while suppressing the constant baying of the corporate press. The BBC predicted that in his speech yesterday, Brown would announce a reduction in the corporations’ involvement in the public sector(19). It was about the only subject he did not discuss(20). For all his talk of “listening and engaging”, corporate power still seems to be forbidden territory.